TaxTMI 
TaxTMI 
2011 (2) TMI 59
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....s of account 1 NGC Network Asia LLC, 1145 Seventeenth Street, N.W. Washington DC 200361, USA USA (i) Dubbing services rendered by the company 2,40,11,107 (ii) Production and post-production service 76,70,111 (iii) Distribution rights acquired for national geographic and adventure one channels 10,58,46,063 3. The AO with the approval of concerned CIT had referred the matter for determination of arms length price to the Transfer Pricing Officer (TPO) but the reference was not accepted by the TPO due to paucity of time. 4. AO therefore asked the assessee to submit details regarding computation of arms length price along with supporting documents. From the details filed the AO noted that the assessee had determined the arms length price on the basis of financial analysis of the companies as per details given below: Name of the Company Operating margin on operating costs (%) - 2003 Engineers India Ltd. 31.26% Gilcon Project Services Ltd. 8.11% Kitco Ltd. -9.73% NIS Sparta Ltd. 11.83% Priya International Ltd. 11.18% RITES Ltd. 20.94% Ujjwal Ltd. 3.21% Water & Power Consultancy Services Ltd....
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....t of distribution of television channels was also intangible. The assessee thus explained that considering the circumstances of the case companies trading in software were the only companies which could be used as comparables for the business of distribution of channels. As regards the comparable selected by the AO the assessee submitted that the comparables selected by the AO were engaged in broadcasting in television channels which was different from the business of distribution of channels in which the assessee was engaged. It was accordingly urged that the comparables selected by the assessee should be accepted. 7. The AO after considering the explanation of the assessee came to the conclusion that neither the comparables selected by the assessee nor those by the AO were proper comparable cases. He therefore observed that in a situation like that when no comparables were available, the assessee's own case should be the best comparable. It was noted by him that in the last year the assessee had paid the license fee @ US$ 1 lakh per year i.e. US$ 12 lakhs for the whole year and claimed that the rate of license fees was at arms length. During year the assessee had paid a fixed fe....
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....t was reached only in January 2003. AO however did not accept the explanation. It was observed by him the rate of hiring transponders or hiring satellite had gone down over the year and after digitalization capacity of transponders had also increased many folds. Further availability of higher capacity digital transponders had led to higher competition amongst various transponders and therefore increase in license fees could not be because of increase in transponder fees/ satellite hire charges. It was also observed by him the subscription base of the assessee had almost stabilized and there were no basis for increase in license fees with retrospective effect. He therefore rejected the explanation of the assessee and adopted the license fees paid by the assessee in the immediate preceding years @ USD 1 lakh per month as the arms length price for the period from 1-4-2002 to 31-1-2003. However for the months of February, 2003 and March, 2003 he accepted the license fees declared by the assessee at USD 1,83,333 per month to be at arms length. He thus disallowed a sum of USD 8,33,330 (Rs. 3,04,70,868) for the period from April 2002 to January, 2003 and added to the total income. 9. The....
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....rables as the cases selected were different both from operational and functional point of view. Therefore the computation made by the assessee regarding transfer pricing adjustments was not correct. It was also submitted that the assessee had used enterprise level profit for comparison which was not correct as it was the transactional profit which should be considered. It was thus submitted that on the facts and in the circumstances of the case the assessee's own transactions in the previous year which were accepted as at arm's length price had been rightly applied. 11. The Learned AR on the other hand argued that the assessee had carried out due diligence in selection of comparables and the latest data available on the date of due diligence had been applied. It was also submitted that though the companies selected operated in different fields the assessee had used data relating to software segments only, for the purpose of comparison which was the intangible segment comparable to the assessee. It was also submitted that the AO had himself not accepted the comparables selected by him and it was not proper for him to reject the cases selected by the assessee. The Learned AR also po....
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....nterprises was at arm's length and no adjustment was required to make. The AO in this case had made reference to the TPO. However the reference due to some administrative difficulties was not accepted. The AO had therefore made its own selection of comparable as listed in para 5 earlier. However the AO agreed that both, the comparables selected by the assessee and those by him were not suitable for comparison due to difference in nature of business. The AO therefore compared the assessee's own payment to its associated enterprises in the immediate preceding year for the purpose of comparison on the ground that in that year the said payment was found to be at arm's length as no adjustments were made. 13. The assessee in the immediate preceding year i.e. A.Y. 2001-02 had paid license fees @ USD 1 lakh per month. However the assessee vide agreement dated 27-1-2003 revised the license fee to USD 1,83,333 per month with retrospective effect from 1-4-2002. The AO has held that such steep increase in license fees by 84.66% with respect to last year was not justified as corresponding increase in revenue was only 32.26%. The AO had therefore made the adjustments on the basis of license fee....